Canada’s Trans Mountain pipeline expansion (TMX) commenced partial operations on 1 May, a milestone in the global energy market.
The pipeline will ship 590 kbpd to Canada’s Pacific Coast from Alberta and will open up unparalleled access for Canadian crude oil to the booming Asian market. As a result, Aframax demand will be created amid this new trade route. Although new trade patterns, which emerged after the EU sanctions on Russia, will continue to support Aframax demand, there is little scope for a further alteration in trade patterns because of the ongoing Russia-Ukraine conflict.With a capacity expansion of ~ 0.6 mbpd, this pipeline will bolster Canada’s pipeline supply through the Pacific Coast. While a part of this oil supply will be absorbed by the refineries in the US West Coast, most supply will be exported to the Asian market (especially China and India), supporting demand for Aframaxes.

According to Drewry, we expect an additional demand for 32-36 Aframaxes annually, assuming 66% exports of 590 kbpd, a parcel size of 80,000 tonnes, with a number of round voyages ~ 40 days.

Talking about the intra-regional trade, USWC refineries will now import crude from Canada instead of Latin American countries, which will lead to an overall gain in the tonne-mile demand and it will further increase trade of Aframaxes.

The rise in Canadian crude supply through the TMX pipeline will curb the country’s crude exports to the US through the existing pipelines such as Keystone, especially considering a modest increase in Canada’s domestic production over the next two years. Accordingly, US Gulf refiners will have to fill this gap with the heavy crude supply from other Latin American countries, which will generate additional demand for Aframaxes.

This shift in trade patterns will reshape the global shipping landscape, as Canadian crude will displace Asian imports from other countries, especially heavy crude, from Latin America and the Middle East. As a result, demand for VLCCs on these routes is also expected to be hampered.

Source: Drewry